FAILURE TO GIVE ADEQUATE REPLIES TO PART 18 QUESTIONS LEADS TO ACTION BEING STRUCK OUT: RELIEF FROM SANCTIONS REFUSED

In his judgment today in Griffith -v- Gourgey [2015] EWHC 1080 (Ch) Mr Justice Simon addressed the issue of whether an action stands struck out if a party gives inadequate replies to Part 18 questions after a peremptory order has made made. He found that the inadequate nature of the replies meant the action was struck out. The Respondents’ application for relief from sanctions was refused.

THE CASE

The action related to three petitions alleging unfair prejudice under s.994 of the Companies Act 2007. The Petitioners made a detailed request for further information from the Respondents and, on the 4th April 2014, an order was made that the Respondents file and serve their response, in default the Points of Defence would be struck out.

KEY POINTS

The court could consider the contents of the replies in determining whether there had been compliance.

Not every failure to reply would represent a breach; the court looks at the substance.

The court would not re-open the issue of whether the original peremptory order should have been made or re-examine the scope of the request.

In the current case the replies were inadequate and did not represent a reply. The Respondents had not complied with the peremptory order and the action stood struck out.

The Respondents’s application for relief from sanctions was not successful.

THE ISSUE: WERE THE REPLIES ADEQUATE REPLIES?

The Petitioners took the view that the replies served were inadequate. They made an application for further directions on the basis that the defence stood struck out. The Respondents applied for relief from sanctions. The matter came before the High Court in November 2014 [2014] EWHC 4440 (Ch). The judge ruled that the relies were “plainly incomplete and insufficient”. However relief from sanctions was granted on terms that the Respondents pay the Petitioners’ costs on an indemnity basis and the a further unless order was made.

“by 4 pm on 4 December 2014 file with the Court and serve on the Petitioners a full and complete response to (1) the [Request] and (2) any request made under paragraph 1 of this order.

Paragraph 5 was in similarly emphatic terms:

For the avoidance of all doubt, the response to be provided by the Respondents under paragraph 4(b) of this Order shall:

(a) be verified with a statement of truth in accordance with Part 22 of the Civil Procedure Rules 1998, and

(b) give a full and complete response to each and every request made in the [Request] and to any request made under paragraph 1 of this Order to which paragraph 3 applies,

and a response that fails to comply in all respects with the provisions of this paragraph at the time when it is filed and served shall be treated as not having been filed and served for the purposes of paragraph 4 of this Order.

Paragraph 7 provided:

Any application by the Respondents to extend the time for compliance with the conditions set out in paragraph 4 of this Order must be made by application notice duly filed with the Court and served on the Petitioners by 4 pm on 20 November 2014. In the absence of such application notice being filed and served as aforesaid, the Respondents shall not be entitled to apply for any such extension of time.

No such application for further time was made.”

THE SECOND APPLICATION BEFORE THE COURT

The issue before the court on this occasion was whether the Respondents replies had complied with the peremptory order. The case was unusual in that the court was concerned with the substance of the replies rather than the time.

THE JUDGMENT ON THIS ISSUE

In essence, the dispute between the parties is whether this Response constituted compliance with paragraphs 4(b) and 5(b) of the Relief Order. No separate issue now arises in relation to compliance with the Second Request.

Mr Brisby QC submitted that the limited time provided in the Relief Order for compliance with §4(b) was a material consideration, at least if it came to adjudicating on the Respondents’ application for relief. I disagree. The time set for the performance of the condition has to be seen against the background of default. The Request was served on 3 September 2013. On 3 March 2014 the Respondents consented to an order that they serve a response by 21 March. They failed to do so. Rose J made the ‘Unless Order’ on 4 April 2014 and the response which was filed on 22 April in purported compliance with this order was found by the Deputy High Court Judge on 13 November 2014 to be non-compliant. The Respondents have had a long time in which to prepare their responses to the Request.

Mr Brisby also suggested that the Request went rather further than might have been ordered on a contested application, although he did not develop this argument with great vigour. Whether right or wrong (and I am inclined to think he is wrong) an order was made by consent by Mr Hollington QC on 3 March 2014 and was made the subject of the ‘Unless Order’ by Rose J on 4 April 2014. It is far too late to complain now about its ambit, even as a forensic grumble.

The Law

The parties’ submissions as to how the Court should approach the issue of compliance with the Relief Order started from different points.

Mr Parker QC submitted that there was only one question to be answered: whether the 4 December Response to the Request complied ‘in all respects’ with the obligation in §§4(b) and 5(b) to serve a ‘full and complete response.’ He submitted that it did not. It followed that, by reason of CPR Part 3.8, the Amended Points of Defence was to be regarded as struck out, unless the Respondents obtained relief against sanctions. However, a second application for relief against sanctions (the first having been heard by Mr Monty QC) was in effect an application to vary or revoke the Relief Order under CPR Part 3.1 (7); and for such an application to succeed the Respondents would have to show either some material change of circumstance since the Relief Order had been made or that the Deputy High Court Judge had been misled in some way as to the correct factual position, see Thevarajah v. Riordan (No.1)[2014] EWCA Civ 14 at [31]. Neither of these matters had been demonstrated by the Respondents.

Mr Brisby QC submitted that, provided a response to a request for additional information has been served in good faith, and provided that it was not ‘illusory’, a party serving the response should be taken to have complied with the order. In any event, the Court had a residual discretion to do what was required in the interests of justice which should be exercised in favour of the defaulting party unless the Further Information considered as a whole fell significantly short of what was required, see QPS Consultants Limited v Kruger Tissue (Manufacturing) Limited [1999] BLR 366, Simon Brown LJ at p.371R.

Before considering these submissions in detail, there are three points to note which are not, or should not be, controversial.

First, in most of the cases which have come before the Courts in recent years in the context of relief against sanctions the relevant issue was notwhat was required to be done pursuant to the prior Court Order but the time by which it was done, see for example the cases on appeal in Denton v. TH White [2014] 3926 at [3-7] and the other cases referred to at [13-20].

The researches of Counsel have not identified any recent authority on the issue of the relevant test for compliance with an order made under Part 18, and the editors of the White Book 2015 appear to consider that what was said by the Court of Appeal in the QPS Consultants case (above) to be of continuing authority, albeit decided before the changes brought about by the introduction of the Civil Procedure Rules.

Secondly, it is clear that an order for clarification under CPR Part 18.1(1)(a) or additional information under Part 18.1(1)(b) should be confined to matters which are ‘reasonably necessary and proportionate’ to enable the party seeking clarification or information to prepare its own case or understand the case it has to meet, see Practice Direction 18PD.1 §1.2. In the present case, although there were a large number of requests (88), in view of the Orders of the Court, I proceed on the assumption that each request was necessary and proportionate, and that without the required information the Petitioner would not be able to prepare its own case or understand the Respondents’ case. The case involves potentially complex accounting issues and the information is critical to the identification of the issues between the parties and the extent of the dispute between them, see for example: McPhilemy v. Times Newspapers Ltd[1999] 3 All ER 775, Lord Woolf MR at p.783b.

Thirdly, it was common ground that if the failure in the Response was trivial (de minimis) or there had been what was plainly an accidental error, it was not to be regarded as non-compliance with an unless order. In the present case, for example, the Response to Request 84 exhibited two copies of a Completion Statement in relation to a property at 10-11 Albert Embankment SE1, and failed to exhibit the relevant Financial Statement. This was later corrected, although the contents of the Financial Statement raised another issue between the parties.

A number of cases were referred to in the course of the hearing, many of which predate the coming into force of the Civil Procedure Rules.

In Reiss v. Woolf [1952] 2 QB 557 at 560 Somervell LJ cited a passage from the judgment of Devlin J in which he referred to what was required in response to what was then a Request for Further and Better Particulars.

I do not … mean that any document with writing on it will do. It must be a document made in good faith and which can fairly be entitled ‘particulars.’ It must not be illusory … That is the test, in my judgment, and not, as the plaintiff contends, whether each demand for particulars has been substantially met.

It was this passage which founded Mr Brisby’s submission as set out above [36].

In Fearis v. Davies and another (1989) 1 FSR 555 the Court had made an Unless Order which required the plaintiff to serve Further and Better Particulars of the Statement of Claim. Having served some but not all of the particulars requested, the plaintiff argued that he was not bound to give some of the particulars sought. The Court of Appeal (May and Nourse LJJ) held that once the order was made following a hearing it was too late to make such a complaint. The argument that the adverse party was not entitled to particulars must be taken at the hearing. The contention that because the order was made by consent it should be construed differently to an order in the same terms after a contested order was described as a ‘novel and startling submission’ by Nourse LJ, who went on to add:

If a party against whom an order for particulars is sought wishes to contest the other party’s right to them, he must do so when the application is heard. If he consents to the making of the order, he waives his right to object and cannot thereafter decline to comply with the order so far as compliance is possible.

An issue may arise as to what order the Court should make if it is satisfied that the requested information does not comply with the terms of the order in respect of which it was made. Mr Brisby relied on an observation of Purchas LJ in Grand Metropolitan Co v. Evans(No.2) [1992] 1 WLR 1191 at p.1195F:

In a pleading containing many different issues, it would be a truly draconian step to strike out the whole of an extensive claim with many different facets because of the failure in respect of one or two of the many allegations to comply with an order to give further and better particulars, unless it was to mark the court’s displeasure at the deliberate and contumelious conduct of one of the parties. … It might have been a far more appropriate course to consider whether the order should have been to strike out those particular paragraphsin toto but to leave the rest of the defence and counterclaim standing.

This issue was further considered in the QPS Consultants case (above) in which the Court of Appeal held that the test of compliance was not so exacting that the judge needed to find that the particulars as a whole were ‘illusory’ or that there had been ‘no genuine attempt to answer’ the requests before they could be struck out. In short, the Court held that such a test, deriving from Devlin J’s observations in Reiss v. Woolf, was no longer applicable (see Simon Brown LJ at 371). A breach of an order for the provision of particulars and the Court’s discretion was engaged on a less exacting test. He added:

That said, I would wish to sound two notes of caution. First, an order for further and better particulars (whether or not in Unless form) is not to be regarded as breached merely because one or more of the replies is insufficient. If the answers could reasonably have been thought complete and sufficient, then the correct view is that they require only expansion or elucidation for which a further order for particulars should be sought and made.

Second, although I would regard an Unless order as breached whenever a reply is plainly incomplete or insufficient, I would not expect the court’s strike out discretion to be invoked, let alone exercised, unless the further and better particulars considered as a whole can be regarded as falling significantly short of what was required. Whether this would be so would depend in part on the number and proportion of the inadequate replies, in part upon the quality of those replies (including whether their inadequacies were due to deliberate obstructiveness, incompetence or whatever), and in part upon their importance to the overall litigation. Satellite strike out litigation is not to be encouraged and it must be recognised that even to strike out part of a pleading (unless … that would in any event be appropriate because, unparticularised, it is ‘vague and embarrassing’), is essentially penal.

In his judgment, Waller LJ concluded that the order required each of the requests to be answered, see 376L.

[Counsel] submitted that if that were the proper construction of the order or similar orders in the future, that it is going to lead to lengthy analyses before Masters relating to whether a request has been properly answered. That in my view should not be so, because what the court is concerned to examine is whether there has been a genuine attempt to answer the request. That is so, because the court will not contemplate enforcing the sanction of strike out either of the particular allegation unparticularised or of the whole pleading, unless there has been a failure, or failures, to make genuine attempts to answer the request or requests. Of course in a vast case like the present one, that still involves some inquiry and some time, but that is because of the nature of the action.

Waller LJ went on to conclude that, although there had been substantial failures to answer many of the requests, the sanction should be proportionate to the failures, and approved the approach of the judge at first instance.

This was not a case where the failures were such that the defendants should be debarred from defending or counterclaiming completely. It was a case where those matters which remained unparticularised, and where no genuine attempt had been made to particularise should be struck out.

Tuckey LJ agreed with both judgments.

An issue arises as to the extent to which the principles established by these cases are applicable since the introduction of the CPR.

As already noted, the editors of the White Book consider that they do, and I note that in his judgment in the present case at [34] Mr Monty QC adopted the formulation of the Court of Appeal in the QPS Consultants case in relation to the First Response.

I therefore conclude that the response was, to adopt the words used by the Court of Appeal in the QPS case, plainly incomplete and insufficient and thus the respondents were in breach of the unless order.

Without intending to summarise the principles beyond those which apply on the present applications, I propose to adopt the following approach.

(1) I am not concerned in the present case with (a) whether the Request was too widely drawn, nor (b) whether it would be regarded as a draconian step to strike out the Amended Points of Defence if I were to find that the terms of §4(b) and 5(b) of Relief Order had not been complied with, see the Grand Metropolitan (No.2) case (above). This is because an order of the Court has been made whose effect is that a response which ‘fails to comply in all respects’ with the requirement of ‘a full and complete response to each and every request’ is ‘to be treated as not having been filed and served for the purposes of this Order’, and consequently not compliant with the condition in the Relief Order for the reinstatement of the Amended Defence.

(2) It is unnecessary to form a concluded view as to whether a ‘genuine attempt’ to give additional information is sufficient, but I am doubtful that a party’s view (reasonable or otherwise) that a response was sufficient would constitute grounds (by itself) for relief against sanctions. It is sufficient to note that the Relief Order in the present case is clear in its terms; and that the stringent conditions (made against the background of default and delay) preclude the Respondents from successfully arguing that (a) individual responses should be treated as compliant if they could ‘reasonably be thought complete and sufficient’ subject to being expanded or elucidated by further order of the Court; and (2) that the Court should consider the Respondents’ responses ‘as a whole’ to see if they fall ‘significantly short of what was required,’ as suggested by Simon Brown LJ in the QPS Consultants Ltd case (above).

(3) Two further points may be noted. First, if cogent reasons were given, it might be open to a respondent to contend that it was unable to give a response or that its ability to give a full response was confined by the state of its knowledge. In this context I note that in [22] of his judgment Mr Monty QC noted that the Respondents have never sought to argue that they could not answer the requests. Secondly, if the Court were persuaded that there had been genuine attempts to answer a request this might bear on its view of the fullness and completeness of the answer. Conversely if the Court were to conclude that a respondent was avoiding answering difficult questions it would undoubtedly count against it.

(4) The Court is not concerned with the truth of responses. This would normally be investigated at trial or, in an egregious case, on a strike out application. Nor is it usually concerned with the logical coherence of the responses, unless it is relevant to the fullness and completeness of the response.

THE JUDGE’S FINDINGS IN THE CURRENT CASE

The judge examined the replies in detail and concluded they did not comply with the order. The action stood struck out. The Respondents’ application for relief from sanctions was refused.

“Conclusion

I bear in mind on the one hand that the Petitioners’ challenge to the information provided by the Respondents was initially confined to 25 out of the 88 responses, that the number of challenges reduced during the course of the hearing, and that the Respondents have plainly spent time and effort in producing the responses to the Request. I also bear in mind that a finding against the Respondents will have particularly adverse consequences in the light of the terms of the Relief Order.

On the other hand, although I have not dealt with every criticism of the responses which were made by Mr Parker QC during the hearing, there was justification in his criticisms that responses to one request were inconsistent with responses to others, revealing an internal incoherence which was relevant to the overall adequacy of the responses.

However, focussing on the responses which I have identified above, I am satisfied that the Respondents have not given full and complete responses to each and every request made.

The question then is: what consequences should follow? In Denton v. White (above), the majority of the Court of Appeal drew attention to the importance of (a) litigation being conducted at proportionate cost, and (b) compliance with orders of the Court, see CPR Part 3.9(1). The history of this litigation shows repeated failures by the Respondents to comply with Court orders and a consequential need for court hearings and wasteful use of its resources. Furthermore, the consequences of a failure to comply with the Relief Order could not have been spelt out more plainly.

The failures in the provision of responses are not excusable failures in relation to matters at the fringes of the litigation. On the contrary the failures to provide full and adequate responses go to the heart of the allegations made against the Respondents; and a significant number of responses are not simply insufficient, they are evasive.

Subject to considering the Respondents’ application for relief against sanctions, the consequence of what I find to have been the failure to comply with §§4(b) and 5 of the Relief Order is that the Amended Points of Defence stands struck out.

Nor is this a case in which relief against sanctions could or should be granted in view of the history of the litigation and the form of the Relief Order; and the Respondents are not in a position to show that there has been some material change of circumstance since the Relief Order was made or that Mr Monty QC was misled in some way.

The exception to this is the documentation referred to in Request 22 above, which raises a timing issue rather than an adequacy issue. If, and to the extent that, it were open to the Respondents to apply for relief against sanctions in relation to the response to Request 22, I would have refused the application, applying the principles set out by the Court of Appeal in the case of Denton v. White (above). Put shortly, the Respondents had still not complied with the request at the close of the hearing, some 3 months after the time that the documents should have been produced. It was and remains a serious failure in the light of the history of the case and the importance of the documents. There has been no (or at least no sufficient) explanation of the reasons for the delay; and considerations which bear on the need for litigation to be conducted efficiently and at proportionate cost, and the importance of compliance with Court Orders point in only one direction: refusal of the application for relief in relation to this matter.”